Blog

6 Things That won’t Let You Make The Most of Reward Points

Credit card reward points can be
valuable only for specific transactions at specific places. You must remember
that a default in repayment of a credit card bill could have a severe impact on
your credit profile.

When was the last
time you used the reward points accumulated on your credit card to
buy something? Or when was the last time you accumulated enough reward
points to make a decent purchase before the points expired?

Reward points are
one of the major attractions banks highlight when pushing credit cards, apart
from offers like waiver of fee for lifetime, complementary lounge access at
airports and free movie tickets every month. While reward points can be
valuable if you make specific transactions at specific places, banks will
rarely tell you about the limitations that come along.

The number of credit cards being used in India has risen sharply over the years. According to data from the Reserve Bank of India (RBI), the number of credit cards in use rose to 43.24 million at the end of November 2018 from 34.78 million at the end of November 2017 and 17.03 million in the same month in 2011.

Each
credit card comes with its own benefits and limitations when it comes to
accumulation of reward points, there are some that are common across
banks. We looked at credit cards of some top banks in terms of the highest
share in the credit card market in India to zero down on six limitations that
will hinder you from accumulating reward points to the extent you think you can.

Attached cost

No card seller will ever tell you about the attached cost unless you ask about it specifically. Many leading card companies levy a reward redemption fee when you use the reward points for a transaction. For instance, most credit cards from HDFC Bank and SBI Card charge a flat reward redemption fee of Rs.99 plus GST. So if a credit card gives you 2 points for every Rs. 100 spent, and 100 points give you Rs. 25 worth cashback or value, then you would need to spend Rs. 20,000 in valid categories of transactions to earn Rs. 100 worth of points. And if your bank charges you Rs. 100 as redemption fee, you actually get nothing.

Fuel purchase

Fuel cards are a
specific category of credit cards that get you rewards on fuel purchases. Banks
have specific tie-ups with oil marketing companies and refueling from relevant
fuel stations will earn you rewards. For instance, if you have a specialized
fuel credit card from a bank having a tie-up with, say, HPCL, you will get a
fuel surcharge waiver and possibly also higher rewards on your spending at HPCL
fuel stations.

However, not
all credit cards offer reward points at fuel stations. If you use a regular
multi-purpose credit card to pay for fuel purchases, you might not get rewards
for the transaction. For instance, ICICI Bank’s Platinum Chip Card gives
you 2 Payback points for every Rs. 100 spent for all retail purchases, except
fuel.

e-wallet
transactions

E-wallets saw rapid adoption and growth in the past few years. Many users preferred using e-wallets for day-to-day small-value transactions like booking a cab or ordering food online not just for the ease and convenience but also because most e-wallets offered attractive cashbacks. Now, leading banks like HDFC Bank have also stopped giving reward points for credit card transactions done to load an e-wallet.

EMI spends

Typically, you
would think that you can collect a chunk of reward points when making
big-ticket purchases like buying a smart television. However, often such
purchases are done on EMI. Many credit cards do not give reward points for
purchases made using the EMI facility of the card or if you convert a
spending to EMI later. So despite making a high-value purchase using your
credit card, you won’t get reward points. In fact, your bank would even reverse
the reward points if you convert a regular payment into EMIs at a later stage.
Some Citibank cards fall under this category.

Payment of premiums

Like high-value purchases, paying an insurance premium, usually a substantial amount, will also not get you as many reward points as you would expect. Most credit card companies give limited or lower reward points for payment of premiums in comparison to other retail spends. This is an important area because many investment and savings-linked insurance plans have high premiums, which could lead to significantly higher rewards.

For instance, HDFC
Bank has a cap of 2,000 points per transaction for insurance transactions.
Similarly, ICICI Bank gives 1 payback point for every 100 spent on
insurance categories against 2 payback points for other retail spending for the
same amount.

Validity

You might want to
accumulate reward points to make a meaningful purchase later. However, remember
that reward points could have an expiry date.

In case of HDFC
Bank, as per the existing details on its website as on 18 February, the reward
points have a validity of two years from the date of accrual. So if 100 reward
points accrue at the end of February 2019, these 100 reward points will be
valid till February 2021. Some premium HDFC Bank credit cards have rewards
validity of three years. Similarly, reward points on some SBI cards are valid
for two years.

What should you do?

Raj Khosla, founder
and managing director of MyMoneyMantra, said different cards have differing
limitations and each card’s limitations should be thoroughly investigated
before signing up. “While reward points should not be the only reason for
signing up for a card, for maximum benefit, it is smart thinking to acquire a
card that dovetails with your spend patterns,” he said.

You should always analyze
your spending pattern to choose a card that yields maximum benefit on your
transaction patterns,
said Sahil Arora, vice-president and head of payment products, Paisabazaar.com.
For example, if you are a frequent flyer, consider a credit card that offers
free air miles, free lounge access and hotel vouchers on your card spends.
Similarly, use fuel cards if you spend a substantial sum on fuel for your
commutes.

“Reward points,
discounts, cashbacks or vouchers available on a credit card should be
considered as these help reduce your overall transaction costs. However, while
doing so, consider various costs associated with credit cards, such as joining
fee and renewal fee, to ensure that the costs do not outweigh the benefits,” Arora said.

There are smart ways to use credit cards effectively and maximize benefits from your cards. However, you must remember that a default in repayment of a credit card bill could have a severe impact on your credit profile and hurt future possibilities of getting a loan at low cost. Moreover, credit cards charge an interest in the range of 2-3.5% per month, which comes to 24-42% per annum, if bills are not paid on time. So use your credit card carefully when you need it, and not just for availing offers or freebies.